Latest / Bloomberg Intelligence / Big Mistake To Not Enlist Europe Against China: Rhodes (Podcast)

Transcript

Big Mistake To Not Enlist Europe Against China: Rhodes (Podcast) · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. Over the weekend, President Trump and
• 0:22
  Speaker 1: President Jean Ping of China got together and agreed to
• 0:26
  Speaker 1: have a ceasefire of sorts, at least, not escalating the
• 0:29
  Speaker 1: tariff talk any further while they continue to negotiate. But
• 0:33
  Speaker 1: the real question is what actually got done? And here
• 0:36
  Speaker 1: to answer that question for us is Bill Rhodes, Banker
• 0:39
  Speaker 1: to the World, that is his book Leadership Lessons from
• 0:42
  Speaker 1: the front Lines of Global Finance. He's President, chief executive
• 0:45
  Speaker 1: officer of William R. Rhodes Global Advisors, longtime top banker
• 0:50
  Speaker 1: at City Group, has been deeply entrenched in a lot
• 0:53
  Speaker 1: of the political quagmires around the world over decades. Bill,
• 0:57
  Speaker 1: So nice to have you here. So what act got
• 1:00
  Speaker 1: done at the G twenty meetings over the weekend? Not
• 1:03
  Speaker 1: a lot in the sense of China the United States.
• 1:06
  Speaker 1: What UH President Trump and She and Ping agreed to
• 1:09
  Speaker 1: do is to continue talking. UH. You still have on
• 1:13
  Speaker 1: the two hundred and fifty billion of Chinese exports. UH
• 1:18
  Speaker 1: here UH. They didn't touch the three d to three
• 1:20
  Speaker 1: hundred and fifty billion. They pushed it off. It was
• 1:23
  Speaker 1: like kicking the can down the road, except for one thing.
• 1:26
  Speaker 1: And in that sense, She Jumping came out the winner
• 1:28
  Speaker 1: because President Trump agreed to UH to back off somewhat
• 1:32
  Speaker 1: on Huawei, which has irritated Lindsey Graham and Marco Rubiot UH,
• 1:37
  Speaker 1: two of his supporters Republicans in the Senate. UH. Not
• 1:41
  Speaker 1: clear to what extent that is. He's playing it down,
• 1:45
  Speaker 1: the Chinese are playing it up. UH. So we'll We'll
• 1:48
  Speaker 1: have to see. But basically we've been stumped at so
• 1:52
  Speaker 1: called completion for the last UH i'd say four months.
• 1:58
  Speaker 1: Big issues have always said UH on this program, intellectual
• 2:03
  Speaker 1: property enforcement and the other thing is opening up on
• 2:06
  Speaker 1: an equal basis to UH to American UH, business and investment,
• 2:10
  Speaker 1: but particularly in the financial sector, but just in general
• 2:14
  Speaker 1: in China, and of course the Chinese want to keep
• 2:17
  Speaker 1: supporting Chijun Ping in particular their state owned enterprises, and
• 2:21
  Speaker 1: that's a mistake because a lot of those state owned
• 2:23
  Speaker 1: enterprise they're inefficient and should be closed down. It should
• 2:26
  Speaker 1: a lot of the small smaller banks in Northeast Asia
• 2:30
  Speaker 1: where we in northeast China where we just saw both
• 2:33
  Speaker 1: Chang Bank go under. So I think that Hi Jun
• 2:37
  Speaker 1: Ping has a lot to consider with his own economy.
• 2:40
  Speaker 1: But if you have to say there's a winner in
• 2:42
  Speaker 1: this depending on what happens in Huawei, it's he, not Trump, alright,
• 2:47
  Speaker 1: So kicking the can down the road at the G
• 2:49
  Speaker 1: twenty maybe a little bit of a net gain for China.
• 2:54
  Speaker 1: It's the Huawei. The president then moved on to Korea
• 2:57
  Speaker 1: and actually had a historic meeting in North Korea. Again,
• 3:01
  Speaker 1: what's your takeaway from that issue? Well, again, I think
• 3:05
  Speaker 1: this is a big prop again the victory for UH,
• 3:09
  Speaker 1: for the leader of U UH Kim Jong un of
• 3:13
  Speaker 1: North Korea, because as you know, the last session that
• 3:18
  Speaker 1: they had didn't work out very well UH in UH
• 3:22
  Speaker 1: in Vietnam and UH they walked away from the from
• 3:26
  Speaker 1: the table there, and so I think that this was
• 3:29
  Speaker 1: a big victory in a propaganda victory for Kim Jong un,
• 3:34
  Speaker 1: although not much in the sense was accomplished, except each
• 3:38
  Speaker 1: of their calling themselves they're best friends. Uh. The North
• 3:42
  Speaker 1: Koreans continue, apparently to build up their nuclear arsenal. They
• 3:46
  Speaker 1: continue to have tests of short term missiles, not intercontinental missiles.
• 3:51
  Speaker 1: But it's not clear that we've gained very much from
• 3:54
  Speaker 1: all of this, except for one big photo up. Well,
• 3:57
  Speaker 1: you know, I want to push back a little bit
• 3:58
  Speaker 1: on the idea President Trump just totally give in with
• 4:02
  Speaker 1: the Huawei issue and it was a total China win.
• 4:05
  Speaker 1: I'm just wondering we're seeing certainly the NASDAC leading the
• 4:08
  Speaker 1: charge today with gains. People expect that US companies will
• 4:11
  Speaker 1: actually win from this, that they'll actually continue being able
• 4:14
  Speaker 1: to ship goods to Huawei in the meantime, Why is
• 4:17
  Speaker 1: this a big win for China when US companies are benefiting. Well,
• 4:21
  Speaker 1: you've got to take a look at the larger picture,
• 4:24
  Speaker 1: because if we're really concerned about security intellectual property, then
• 4:29
  Speaker 1: we should be. We should be concerned about this short
• 4:32
  Speaker 1: term for a number of companies that sell THEAWI that
• 4:37
  Speaker 1: that's good news. But overall, and which is a problem
• 4:40
  Speaker 1: that was mentioned by Marco Ruby and Lindsey Graham, is
• 4:44
  Speaker 1: are we concerned about the longer term five G and
• 4:47
  Speaker 1: UH security side of of Huahwei, because look what we're doing.
• 4:53
  Speaker 1: We're telling all our ali allies not to deal with
• 4:56
  Speaker 1: Huawei and then we back off. So as usual, are
• 5:00
  Speaker 1: allies are confused as to what our policies are are not.
• 5:05
  Speaker 1: And I think one of the big mistakes that the
• 5:07
  Speaker 1: administration has made was not to mobilize the Europeans in
• 5:11
  Speaker 1: our in our negotiations with China in the sense of
• 5:15
  Speaker 1: adding more weight to that UH, and so we decided
• 5:19
  Speaker 1: to go it alone. We have a great negotiator, Lightheiser. UH.
• 5:23
  Speaker 1: The question is are we going to stick to our guns?
• 5:26
  Speaker 1: Obviously the stock market likes the short term, but you
• 5:30
  Speaker 1: have to wonder where this is going to lead UH
• 5:33
  Speaker 1: longer term. I guess the bottom bottom line is we
• 5:37
  Speaker 1: kick the can down the road China. In the US,
• 5:39
  Speaker 1: what is your belief as to what kind of trade
• 5:42
  Speaker 1: deal ultimately maybe achieved between the U S and China? Well,
• 5:46
  Speaker 1: I think right now a lottle they claim they've done
• 5:49
  Speaker 1: any percent, They're still far apart in intellectual property and
• 5:52
  Speaker 1: enforcement and also the the whole question of the state
• 5:56
  Speaker 1: owned enterprises. At the end of the day, both China
• 6:00
  Speaker 1: in the United States need to deal China does because uh,
• 6:04
  Speaker 1: they still haven't resolved the shadow banking system. As I mentioned,
• 6:07
  Speaker 1: a lot of their smaller UH banks in the Northeast China,
• 6:11
  Speaker 1: municipal and provincial banks are basically bankrupt. Uh, they're supporting
• 6:16
  Speaker 1: a lot of state owned enterprises should be closed down.
• 6:19
  Speaker 1: And frankly, the growth is slowing and a lot of
• 6:22
  Speaker 1: the Chinese continue to move their money out, and this
• 6:25
  Speaker 1: concerns the People's Bank of China, who keeps pushing money
• 6:28
  Speaker 1: into the system to keep growth above six percent. And
• 6:31
  Speaker 1: what's now an added aggravation to shi Jin pain apart
• 6:35
  Speaker 1: from all of the points we're talking about, is he's
• 6:37
  Speaker 1: got some sports, some sort of an uprising in Hong Kong,
• 6:41
  Speaker 1: and people in Hong Kong say it's it's like a
• 6:44
  Speaker 1: mini tenement square, and he's got to be very careful
• 6:48
  Speaker 1: how he handles that, uh, because the last thing they
• 6:52
  Speaker 1: want is for businesses to shift to Singapore or elsewhere.
• 6:56
  Speaker 1: Because the heart and soul of Hong Kong is a
• 6:58
  Speaker 1: financial system which is based on the rule of law.
• 7:02
  Speaker 1: So Carrie Lamb really put her foot into it. Whether
• 7:05
  Speaker 1: she was ordered to by Beijing or she did it
• 7:08
  Speaker 1: on her own in Beijing approved not clear, but this
• 7:11
  Speaker 1: is a real thorn in their side because remember they're
• 7:14
  Speaker 1: saying to Taiwan, look, if you come with us and reincorporate,
• 7:18
  Speaker 1: we're gonna view all of freedoms we gave Hong Kong. Uh.
• 7:21
  Speaker 1: And so this is the anniversary of a turnover, and
• 7:25
  Speaker 1: you see what's going on with the demonstrations and what
• 7:27
  Speaker 1: is it. Two weeks ago they had two million people
• 7:29
  Speaker 1: on the street of population of seven million. So he's
• 7:32
  Speaker 1: got that to deal with. So China's got it. It's
• 7:36
  Speaker 1: it's problems. And here in the United States, I think
• 7:39
  Speaker 1: we we we need a deal to in the sense
• 7:42
  Speaker 1: of UH, we can't fight the world on trade and
• 7:46
  Speaker 1: our our partners. I think in Europe UH have problems
• 7:51
  Speaker 1: with their own economy, and EU is moving ahead. They
• 7:54
  Speaker 1: just signed agreement with Merco Sure which is seven eighty
• 7:57
  Speaker 1: million people, and they just did a deal with the NO.
• 8:00
  Speaker 1: So while we're fooling around, we can't even get the
• 8:03
  Speaker 1: the old NAFTA proved. The EU is moving ahead doing
• 8:06
  Speaker 1: all these things, and the Japanese with the the residue
• 8:10
  Speaker 1: of t p P are moving ahead there. So I
• 8:13
  Speaker 1: think we're kind of on the sidelines here. Yeah. Well,
• 8:16
  Speaker 1: and I want to pick up on a point that
• 8:18
  Speaker 1: you mentioned about the shadow banking system in China expanding,
• 8:21
  Speaker 1: and in the US we have the Federal Reserve poise
• 8:24
  Speaker 1: to cut interest rates due to the slowdown that some
• 8:27
  Speaker 1: say has already in happened as a result of the
• 8:30
  Speaker 1: existing trade tensions. I'm just wondering what does this do
• 8:34
  Speaker 1: to markets when you have an expansion of leverage at
• 8:38
  Speaker 1: this point in the business cycle worldwide. I mean, we're
• 8:41
  Speaker 1: seeing this certainly in the United States, we're seeing this
• 8:43
  Speaker 1: in China and even the European Union where you have
• 8:46
  Speaker 1: Mario Draggy ready to cut interest rates. Further. Well, I
• 8:50
  Speaker 1: think it's a little scary in the sense that DCB
• 8:53
  Speaker 1: doesn't have much ammunition. They claim they do, but I
• 8:55
  Speaker 1: don't really think they do. And here in the United States,
• 8:58
  Speaker 1: we've got to be careful also because when the next
• 9:01
  Speaker 1: one hits US recession, uh, we've got to be able
• 9:07
  Speaker 1: to have the firepower to fight it. And that's a
• 9:09
  Speaker 1: real concern. And of course, with all this new liquidity
• 9:12
  Speaker 1: coming on top of the old liquidity in the markets
• 9:14
  Speaker 1: and the search and retrie yield Uh, it can be
• 9:17
  Speaker 1: kind of scary for where we're gonna be next year.
• 9:22
  Speaker 1: So interesting. So Bill, I just want to switch gears quickly.
• 9:24
  Speaker 1: We've got a couple of minutes left. I asked you
• 9:26
  Speaker 1: off air in that when you joined City Bank in
• 9:28
  Speaker 1: nine seven, what was your first job, and you told
• 9:30
  Speaker 1: me they shipped off to Venezuela, So you clearly have
• 9:33
  Speaker 1: strong ties to Venezuela. Can you give us kind of
• 9:37
  Speaker 1: what you think the latest is going on Venezuela. I
• 9:41
  Speaker 1: think it's sort of a standoff because three months ago
• 9:44
  Speaker 1: the Trump administration thought that by putting on sanctions on
• 9:46
  Speaker 1: the oil exports that they could cause the fall of
• 9:49
  Speaker 1: Maduro and the army uh, and the armed forces would
• 9:53
  Speaker 1: turn against him. That has not happened. And as you'll notice,
• 9:56
  Speaker 1: not much as being said about Venezuela in the White House,
• 9:59
  Speaker 1: whereas two months uh, the drums were beating every day.
• 10:03
  Speaker 1: So now they're trying to work on negotiations. But the
• 10:05
  Speaker 1: situation there is just getting worse. You have between four
• 10:09
  Speaker 1: and five million refugees out of a population of thirty million. UM.
• 10:14
  Speaker 1: I was down talking to the President of Ecuador a
• 10:17
  Speaker 1: month and a half ago, uh, because he was interested
• 10:20
  Speaker 1: in some ideas I had about dealing with the refugees,
• 10:23
  Speaker 1: because most of the refugees start in Columbia, go through Ecuador,
• 10:26
  Speaker 1: uh and then down to Peru, Chile and Argentina. But
• 10:30
  Speaker 1: in a popular small population, which Ecuador has, UH, they
• 10:34
  Speaker 1: have percentage wise the largest because they have almost three
• 10:37
  Speaker 1: hundred thousand refugees and these people don't have the education,
• 10:42
  Speaker 1: to health services or anything else. It's the biggest uh
• 10:45
  Speaker 1: refugee humanitarian crisis in the in the history of Latin America. UH.
• 10:50
  Speaker 1: And and you know, it's almost criminal that this guy
• 10:54
  Speaker 1: Medoro is still is still in power. But uh, you know,
• 10:58
  Speaker 1: the governments of Columbian, Equador or would like to do something,
• 11:01
  Speaker 1: but they're looking for the leadership in the United States.
• 11:03
  Speaker 1: And I think that uh the White House has been
• 11:06
  Speaker 1: silent on Venezuela recently. Uh. You can constantly hear people
• 11:10
  Speaker 1: like Marco Rubio talking it up down in Florida. But
• 11:15
  Speaker 1: I think it's a very very difficult situation. Of course,
• 11:17
  Speaker 1: Putin has his hands in that too because of Rosneft,
• 11:20
  Speaker 1: and the Chinese just want to deal. When I was
• 11:22
  Speaker 1: there in December, they told me they don't care which
• 11:25
  Speaker 1: government to do or they just want to preserve their assets.
• 11:28
  Speaker 1: But they are back in Russia on this, and Cuba's
• 11:30
  Speaker 1: got twenty thousand, as we say in Spanish effectivals, whether
• 11:34
  Speaker 1: it be um in the security services and advising the
• 11:39
  Speaker 1: armed forces, teachers, some doctors, et cetera. And they depend
• 11:43
  Speaker 1: on Venezuela because the Venezuelan selm cut right oil. And
• 11:47
  Speaker 1: so you have this Russian, Chinese, Cuban somewhat if you
• 11:52
  Speaker 1: want to put in Nicaragua coalition down there, all of
• 11:55
  Speaker 1: which are very anti Americans. So I've always felt that
• 11:59
  Speaker 1: we we haven't can the venez well in situation serious lee.
• 12:03
  Speaker 1: When Condi Rice, who was a friend, was the National
• 12:06
  Speaker 1: Security Advisor, I haven't had lunch with her one day
• 12:07
  Speaker 1: and I was trying to tell her take Chaves seriously,
• 12:11
  Speaker 1: and at that point she was more interested, which I
• 12:14
  Speaker 1: understand what was going on in the Middle East. But
• 12:16
  Speaker 1: we haven't taken venez well As seriously enough. And I
• 12:19
  Speaker 1: think it is a big mistake politically, strategically, and certainly
• 12:23
  Speaker 1: on the humanitarian side. Bill Rhodes, thank you so much
• 12:26
  Speaker 1: for being with us and for the work that you do.
• 12:28
  Speaker 1: Bill Rhodes, President and Chief executive officer at William R.
• 12:31
  Speaker 1: Rhodes Global Advisor. Is also a senior advisor to the
• 12:34
  Speaker 1: Hudston Institute, as well as author of Banker to the
• 12:38
  Speaker 1: World's Leadership Lessons from the front Lines of Global Finance.
• 12:57
  Speaker 1: Well w t I crude oil is up nearly from
• 13:01
  Speaker 1: its December low, that amid the OPEC talks which are
• 13:05
  Speaker 1: underweight right now in Vienna. To get the latest on
• 13:08
  Speaker 1: all things global oil and OPEC, we turned to our
• 13:10
  Speaker 1: next guest at, Jason Shanker. Jason's president of Prestige Economics,
• 13:14
  Speaker 1: is also a chairman of the Futurist Institute and a
• 13:17
  Speaker 1: Bloomberg Opinion contributor. Check out Jason's new book, The Future
• 13:21
  Speaker 1: of Energy. Jason, thanks so much for joining us. What
• 13:24
  Speaker 1: are you, what are your expectations and what do you
• 13:27
  Speaker 1: think we will get out of these opaque two day meetings. Well,
• 13:30
  Speaker 1: I think the most important thing here is you're going
• 13:32
  Speaker 1: to see production levels remain constrained. You're going to see
• 13:36
  Speaker 1: a rollover of the decision moving forward, and a lot
• 13:40
  Speaker 1: of that's informed by what's going on in the global economy,
• 13:42
  Speaker 1: which is a slow now. One thing that I find
• 13:45
  Speaker 1: interesting is there's this push pull dynamic that as OPEC
• 13:49
  Speaker 1: tries to support values in crude by cutting production, President
• 13:53
  Speaker 1: Trump is saying, we want to make sure oil prices
• 13:56
  Speaker 1: are low enough so that it doesn't cause pain at
• 13:58
  Speaker 1: the pump. And I'm wondering how that dynamic is going
• 14:01
  Speaker 1: to play into OPEX decisions. Well, you know, the summer
• 14:04
  Speaker 1: driving season in the US is one of the biggest
• 14:07
  Speaker 1: drivers of oil prices globally. It's why prices tend to
• 14:10
  Speaker 1: rally in the first and early parts of the second
• 14:13
  Speaker 1: quarter of the year's refineries are ramping up and pagers
• 14:17
  Speaker 1: are making sure that if they have exposures that they're
• 14:21
  Speaker 1: they're making sure they've got those locked in. But when
• 14:23
  Speaker 1: the summer driving season ends, a lot of that disappears.
• 14:27
  Speaker 1: So the summer driving season will effectively end here in
• 14:30
  Speaker 1: three weeks on the NIMAX when we roll the contract
• 14:33
  Speaker 1: to September. So if you want to see lower prices
• 14:36
  Speaker 1: on the n Imax, that's probably gonna happen on its own,
• 14:39
  Speaker 1: because the refiners aren't buying in order to hedge that
• 14:42
  Speaker 1: summer driving season because we're trading September crude and the
• 14:45
  Speaker 1: driving seasons effectively over. So you know, those dynamics of well,
• 14:49
  Speaker 1: we want the prices to be low at the pump
• 14:51
  Speaker 1: for the consumer. Well that the truth is is that
• 14:54
  Speaker 1: consumer is what drives the prices up fundamentally in the
• 14:57
  Speaker 1: global demand market. So, Jason, you mentioned earlier slowing global demand.
• 15:02
  Speaker 1: How do you think OPEC and Russia are adjusting production
• 15:07
  Speaker 1: in what it does appear to be slowing global demand. Well,
• 15:11
  Speaker 1: you know, they've been really on top of the downside
• 15:13
  Speaker 1: risk about trade. Uh. You know, I've been pretty critical
• 15:16
  Speaker 1: of how the I m F and the FED last
• 15:18
  Speaker 1: year handled the risks, the downside risk to growth from trade. OPEC,
• 15:23
  Speaker 1: on the other hand, was a bit more aggressive about
• 15:26
  Speaker 1: the downside risks posed by the US China trade war.
• 15:30
  Speaker 1: And what we've seen is they've been much more aggressive
• 15:34
  Speaker 1: in lowering their global growth forecast and the p m
• 15:36
  Speaker 1: I s out in the last twenty four hours out
• 15:38
  Speaker 1: of China, the US, and in Europe. The some of
• 15:41
  Speaker 1: those is below one fifty. And that means that globally
• 15:45
  Speaker 1: manufacturing is contracting right now. That's bearish for crude. OPEC
• 15:50
  Speaker 1: knows that, Uh, they've been on top of expecting some
• 15:53
  Speaker 1: weaker growth. That's part of the reason they're going to
• 15:55
  Speaker 1: like to roll over this. Uh, this constrained production decision. Well,
• 16:00
  Speaker 1: how much is this also due to the increasing in
• 16:02
  Speaker 1: record production out of the U S shell patch. I mean,
• 16:05
  Speaker 1: that's been the swing production factor here. Uh, and that's
• 16:08
  Speaker 1: been accelerating. I mean, is that more of the story
• 16:11
  Speaker 1: than even the demand sided at this point? No, I
• 16:14
  Speaker 1: don't think so. And the reason is is that commodities
• 16:17
  Speaker 1: like oil, they're bought, not sold. And the reason oil
• 16:20
  Speaker 1: prices rose so much in the first you know, four
• 16:22
  Speaker 1: or five months of the year was because there was
• 16:25
  Speaker 1: a big ramp up to what is right now the
• 16:27
  Speaker 1: biggest summer driving season in US history. Because you know,
• 16:30
  Speaker 1: people have jobs. At the unemployment rate right three point
• 16:33
  Speaker 1: six percent wages or of three point one percent year
• 16:36
  Speaker 1: a year. People have jobs, people have money, they're out
• 16:38
  Speaker 1: there driving. Got the fundamental demand factor, the shell stuff
• 16:41
  Speaker 1: was going on throughout all of that. But what's happened
• 16:44
  Speaker 1: in the last few months is that China's manufacturing is contracting,
• 16:48
  Speaker 1: Europe's manufacturing is contracting. US manufacturing is the i M
• 16:51
  Speaker 1: has slowed a lot. It's still expanding, but it's quite tepid.
• 16:55
  Speaker 1: That's been a big change in the last few months
• 16:58
  Speaker 1: and that's fundament toll. And so that that that reduced
• 17:02
  Speaker 1: demand with the increased supply, that's the problem. And when
• 17:06
  Speaker 1: we go into the fall, after the driving season ends,
• 17:09
  Speaker 1: there's more downside risks. I mean, look at what gave
• 17:11
  Speaker 1: us a pop and oil over the last couple of weeks, right,
• 17:13
  Speaker 1: we had geopolitical risks with Irami, had a contract rule
• 17:16
  Speaker 1: to August, we had OPEC finally setting a meeting, you know,
• 17:20
  Speaker 1: and you've got the summer driving season and you had
• 17:22
  Speaker 1: a dubblish that think about all that price bullish stuff
• 17:26
  Speaker 1: and we're still nowhere near we were where we were
• 17:29
  Speaker 1: for prices just a few months ago. We're still off
• 17:32
  Speaker 1: those levels. So that's because of this weak global growth situation.
• 17:35
  Speaker 1: Jason Chanker, thank you so much for being with us.
• 17:38
  Speaker 1: Jason Schanker is president of Prestige Economics, also chair of
• 17:41
  Speaker 1: the Futurist Institute, and a Bloomberg Opinion calumnist, author of
• 17:45
  Speaker 1: a new book, The Future of Energy. Traders are spending
• 18:04
  Speaker 1: an increasing amount of time trying to pass through the
• 18:06
  Speaker 1: rhetoric in Washington, d C. And beyond presidential elections heat up.
• 18:12
  Speaker 1: Joining us now to talk about what we've seen out
• 18:14
  Speaker 1: of the Democrats last week at the two debates, as
• 18:17
  Speaker 1: well as what to expect coming in the upcoming weeks.
• 18:20
  Speaker 1: Is Lonnie Chan David and Diane Stephy Research Fellow at
• 18:23
  Speaker 1: the Hoover Institution, also Director of Domestic Policy Studies and
• 18:27
  Speaker 1: Lecture in the Public Policy Program at Stanford University UH.
• 18:31
  Speaker 1: Lonnie also is a former advisor to the Marco Rubio
• 18:34
  Speaker 1: and mid Romney campaigns. So, given your deep understanding and
• 18:39
  Speaker 1: background working with Republican campaigns, Lonnie, do you have a
• 18:44
  Speaker 1: sense of which candidate will be the toughest for President
• 18:48
  Speaker 1: Trump to beat based on what we saw last week
• 18:51
  Speaker 1: at the Democratic debates. Well, I think the conventional wisdom
• 18:54
  Speaker 1: going into the debates was that Joe Biden was going
• 18:57
  Speaker 1: to be the most difficult challenge for President Trump, and
• 19:00
  Speaker 1: that still might be the case given his positioning on issues,
• 19:03
  Speaker 1: But certainly I think his performance in the debate on
• 19:06
  Speaker 1: the second evening exposed some some serious weaknesses in terms
• 19:10
  Speaker 1: of his vulnerability on some issues within the Democratic primary electorate. So,
• 19:16
  Speaker 1: putting Biden aside for a moment um, I think Kamala
• 19:19
  Speaker 1: Harris had a very strong performance that people Republican or
• 19:23
  Speaker 1: Democrat believe put her in a good position to contest
• 19:27
  Speaker 1: the election against President Trump, and also others who have
• 19:30
  Speaker 1: made noise, But maybe we haven't gotten as much exposure
• 19:34
  Speaker 1: to people like Pete budajj Uh, for example, the mayor
• 19:37
  Speaker 1: of South Dend, Indiana. He might present a sort of
• 19:40
  Speaker 1: generational contrast to the president. So it'll be interesting to
• 19:44
  Speaker 1: see that the conventional wisdom about Biden having been the
• 19:48
  Speaker 1: top candidate, I think was was called into question last week,
• 19:51
  Speaker 1: and we'll we'll we'll have to to see how that
• 19:54
  Speaker 1: develops as the campaign goes on. Wennie, what are the
• 19:56
  Speaker 1: issues that you believe the Democratic candidate, whoever that may be,
• 20:01
  Speaker 1: should really focus on to defeat President Trump. Well, you know,
• 20:05
  Speaker 1: the challenge is going to be that the biggest issue
• 20:08
  Speaker 1: traditionally for presidential elections has been the strength of the economy,
• 20:12
  Speaker 1: in the state of the economy, and it's going to
• 20:14
  Speaker 1: be tough if the economy continues to perform reasonably well
• 20:18
  Speaker 1: for Democrats to take that issue head on. Uh. That
• 20:22
  Speaker 1: having been said, if the economy begins to slow, Democrats
• 20:25
  Speaker 1: will certainly try to seize on the economy as being
• 20:27
  Speaker 1: the tough that the top issue now I would have
• 20:30
  Speaker 1: said healthcare was an issue where Democrats had a potential advantage. However,
• 20:34
  Speaker 1: what you'll notice is in that debate last week, many
• 20:36
  Speaker 1: Democrats went pretty far to the left in embracing medicare
• 20:41
  Speaker 1: for all single payer type solutions and or complementary or
• 20:45
  Speaker 1: free healthcare for undocumented immigrants. And I think those issues, uh,
• 20:49
  Speaker 1: it could potentially harm them in a general election if
• 20:52
  Speaker 1: that posture continues, Lonnie. One big question, especially given your
• 20:58
  Speaker 1: intimate connection with Mark at rue Bo. Marco Rubio came
• 21:01
  Speaker 1: out Senator Ubio with some harsh criticism of President Trump
• 21:05
  Speaker 1: on the Huawei deal, the fact that he was loosening
• 21:08
  Speaker 1: criticisms about national security after the G twenty meetings, And
• 21:11
  Speaker 1: I'm wondering how much descent, how much pushback there is
• 21:15
  Speaker 1: within the Republican Party against some of President Trump's policies,
• 21:19
  Speaker 1: particularly on trade, given that they kind of run counter
• 21:22
  Speaker 1: to the Republican viewpoint when it comes to free trade. Well,
• 21:26
  Speaker 1: I think that the criticism of the President has become
• 21:29
  Speaker 1: much more attenuated and tempered here over the years. But
• 21:32
  Speaker 1: certainly there is significant concern regarding um loosening the restrictions
• 21:40
  Speaker 1: on Huawei, which is perceived to be a national security issue,
• 21:44
  Speaker 1: not as much a trade issue. Not just from Marco Rubio.
• 21:47
  Speaker 1: By the way, You've got Tom Cotton and other Republicans
• 21:50
  Speaker 1: who have expressed concerns about allowing Huawei to do more
• 21:55
  Speaker 1: business in one form or another in the United States.
• 21:57
  Speaker 1: And of course the Huawei issue is multidimensions. I'm sure
• 22:00
  Speaker 1: you've covered. It's not just a question of whether they're
• 22:03
  Speaker 1: allowed to sell their technology in the US. But in particular,
• 22:06
  Speaker 1: the President talked about loosening restrictions on US suppliers working
• 22:10
  Speaker 1: with Huawei, which he's arguing is separate and apart from
• 22:13
  Speaker 1: the national security issue. So I do think within Republican
• 22:17
  Speaker 1: circles there will continue to be muted opposition to the
• 22:20
  Speaker 1: President and what he's trying to do with respect to Huawei. Trade. Generally,
• 22:25
  Speaker 1: I would say that you've still got some Republicans who
• 22:28
  Speaker 1: take that pretty strong free trade point of view. I'm
• 22:31
  Speaker 1: thinking of people like Rob Portman of Ohio, mild Boss
• 22:34
  Speaker 1: Mitt Romney, who's now a U S Senator from Utah,
• 22:37
  Speaker 1: and folks like Rubio who have been very much embracing
• 22:40
  Speaker 1: this free trade position. But but I think they'll pick
• 22:42
  Speaker 1: their spots I don't think you'll see them come out
• 22:45
  Speaker 1: guns blazing for the president. I do think that they
• 22:47
  Speaker 1: will sort of say, look here certain times and situations
• 22:49
  Speaker 1: when the President might try to do something differently, or
• 22:52
  Speaker 1: when the critique might be less strident and more targeted. So, Lonnie,
• 22:57
  Speaker 1: do you think ultimately the Democratic Party will put up
• 23:00
  Speaker 1: a centrist candidate to go against President Trump? Or do
• 23:04
  Speaker 1: you think the I guess the pull to the left
• 23:08
  Speaker 1: will be too great and you might get someone like us,
• 23:11
  Speaker 1: you know, someone a little bit more on the progressive side. Well,
• 23:15
  Speaker 1: you know, the traditional reality of primaries is that they
• 23:19
  Speaker 1: do pull parties to the polls. So the Republicans get
• 23:22
  Speaker 1: pulled right, Democrats get pulled left. But you know, Democrats
• 23:26
  Speaker 1: do ultimately, or have traditionally sort of fallen in line.
• 23:30
  Speaker 1: So you know, well, we'll have to see kind of
• 23:33
  Speaker 1: how that goes. My sense at this point is that
• 23:36
  Speaker 1: Democrats want someone who's perceived to be a fighter. They
• 23:38
  Speaker 1: want someone who's progressive, and that would suggest that they
• 23:42
  Speaker 1: won't pick someone who is just sort of in the
• 23:44
  Speaker 1: best position to beat Donald Trump. They're gonna pick someone
• 23:47
  Speaker 1: who they believe will will will take the fight to him,
• 23:50
  Speaker 1: even if that means espousing positions that might be a
• 23:53
  Speaker 1: little bit farther to the left. So I tend to
• 23:55
  Speaker 1: think that these primary campaigns do polarize the party's more
• 23:59
  Speaker 1: and what see is not a centrist coming out of this,
• 24:02
  Speaker 1: but somebody who probably is a little bit more uh
• 24:06
  Speaker 1: firm in their progressive views. So right now, understanding that
• 24:09
  Speaker 1: it is very early in this campaign season, what is
• 24:14
  Speaker 1: your gas? Your best gas? As to the likelihood the
• 24:17
  Speaker 1: President Trump is going to win reelection, I'd say he
• 24:20
  Speaker 1: has good odds. I think that that it looks like
• 24:23
  Speaker 1: he is going to have a divided Democratic primary field
• 24:27
  Speaker 1: for some time. Whoever the Democratic nominee is is going
• 24:30
  Speaker 1: to come out of that process relatively bruised and battered.
• 24:33
  Speaker 1: They're going to have to rehabilitate their image a little
• 24:36
  Speaker 1: bit because these primaries do tend to get quite ugly
• 24:39
  Speaker 1: and quite divisive. And as I said earlier, the economy
• 24:41
  Speaker 1: really remains the top issue, and so long as economic
• 24:44
  Speaker 1: performance overall remains pretty good, I think the presidents in
• 24:49
  Speaker 1: good shape now. Obviously, lots of X factors here, lots
• 24:52
  Speaker 1: of things that could turn things in a different direction,
• 24:55
  Speaker 1: not the least of which is of Democrats managed to
• 24:57
  Speaker 1: coalesce behind somebody who's relatively more moder relatively earlier in
• 25:01
  Speaker 1: the process. That would certainly hurt the president. And if
• 25:04
  Speaker 1: the economy takes a turn for the south, or frankly,
• 25:07
  Speaker 1: if one of these geopolitical issues becomes more significant, those
• 25:10
  Speaker 1: could be issues for the president. Lonnie Chen, thank you
• 25:13
  Speaker 1: so much. Lonnie Chen as a David and Diane Stuffy
• 25:15
  Speaker 1: research fellow at the Hoover Institution, also a director of
• 25:18
  Speaker 1: Domestic Policy Studies and lecture in the Public Policy Program
• 25:21
  Speaker 1: at Stanford University. The meeting and the subsequent ceasefire between
• 25:41
  Speaker 1: Presidents Jean Ping and Donald Trump certainly directing market action today,
• 25:46
  Speaker 1: the NASDAC rising at one point two per cent on
• 25:48
  Speaker 1: the heels of that loose agreement. Joining us down to
• 25:52
  Speaker 1: talk about the implications here and what we've learned about
• 25:56
  Speaker 1: both sides in this protracted trade dispute. Is Michael Herson,
• 26:00
  Speaker 1: his head for the China and Northeast Asia regions for
• 26:04
  Speaker 1: your Asia Group in New York. Michael, you worked previously
• 26:07
  Speaker 1: at the US Treasure Department in Beijing. You have a
• 26:11
  Speaker 1: very close and and uh personal experience with negotiations such
• 26:15
  Speaker 1: as these, so Given that, what is your perspective coming
• 26:18
  Speaker 1: out of the G twenty meetings over the weekend. What
• 26:21
  Speaker 1: should we be talking about that we aren't Well, I
• 26:25
  Speaker 1: think what we should be talking about is this the
• 26:27
  Speaker 1: fact that really the tough questions still lay ahead. What
• 26:31
  Speaker 1: we saw coming out of the meeting is, as you said,
• 26:34
  Speaker 1: it's a ceasefire, and it was really driven by the
• 26:37
  Speaker 1: desire both by President Trump and President she to avoid
• 26:41
  Speaker 1: the risks of further escalation. But it wasn't driven by
• 26:45
  Speaker 1: a sense that the two sides have bridged the gap
• 26:49
  Speaker 1: on the key issues remaining on the trade dispute and
• 26:53
  Speaker 1: on the path for for Huawei going forward. So, um,
• 26:58
  Speaker 1: it's it's a it's a pause, it's it's it's positive.
• 27:03
  Speaker 1: But um, really the tough question still lay ahead, and
• 27:06
  Speaker 1: it's going to be very important to see what happens
• 27:08
  Speaker 1: both with trade talks and with Huawei in the weeks
• 27:11
  Speaker 1: it had to get any sense of whether or not
• 27:12
  Speaker 1: this is sustainable or leads to an eventual deal. Michael,
• 27:16
  Speaker 1: are you surprised at all that President Trump seemed to
• 27:19
  Speaker 1: backtrack was somewhat on the restrictions UH placed on Huawei.
• 27:25
  Speaker 1: We expected there to be some nod towards um towards
• 27:31
  Speaker 1: finding an off ramp to Huawei, because otherwise I think
• 27:33
  Speaker 1: it would have been very difficult for China to sit back,
• 27:37
  Speaker 1: to come back to the negotiating table. So I was
• 27:39
  Speaker 1: a little surprised at how forward meaning the President was UM.
• 27:44
  Speaker 1: But I think overall we we felt that that there
• 27:47
  Speaker 1: was going to have to be some indication for Beijing
• 27:49
  Speaker 1: that that Trump and the US is willing to explore
• 27:53
  Speaker 1: a way to to modify treatment of Huawei. But really
• 27:57
  Speaker 1: made your questions unanswered in terms of how the U
• 27:59
  Speaker 1: s expects to do that, And as as I'm sure
• 28:01
  Speaker 1: you've seen, there's been, UM, there's been quite the blowback
• 28:05
  Speaker 1: already in Congress on a bipartisan basis from senators who
• 28:09
  Speaker 1: who view this as capitulation and want to see the
• 28:13
  Speaker 1: knives still out on Huawei. Michael, do you think that
• 28:17
  Speaker 1: the US has a coherent and understandable desire for these
• 28:22
  Speaker 1: trade discussions in terms of what they would like the
• 28:25
  Speaker 1: end goal to be. It's a great question. There are
• 28:29
  Speaker 1: different factions within the administration that have different goals in
• 28:33
  Speaker 1: mind for for China. Some officials, I would say Treasury
• 28:36
  Speaker 1: Secretary Minuchin clearly want to deal and are worried about
• 28:40
  Speaker 1: the impact that um continued standoff or even escalation would
• 28:44
  Speaker 1: have on US economy, US markets. Then on the other
• 28:48
  Speaker 1: side of the spectrum, you've got officials like Peter Navarro
• 28:50
  Speaker 1: who have very maximalist demands for a deal and would
• 28:54
  Speaker 1: be perfectly happy with just keeping tariffs up on China,
• 28:58
  Speaker 1: viewing that as something that throws stand in the gears
• 29:01
  Speaker 1: of China's economy. They would like to see Huawei go down.
• 29:04
  Speaker 1: And then you've got officials who are sort of in
• 29:06
  Speaker 1: the middle. And I would put Robert Leidheiser, who's really
• 29:09
  Speaker 1: the key figure here, the U S Trade representative. He's
• 29:11
  Speaker 1: somebody who has tough views on China, will insist on
• 29:15
  Speaker 1: a very strong deal, but all things equal, as a pragmatist,
• 29:18
  Speaker 1: and somebody who eventually does want to arrive at a deal.
• 29:21
  Speaker 1: And so those different factions balanced out, and there are more.
• 29:25
  Speaker 1: There's the national security and law enforcement types as well.
• 29:28
  Speaker 1: Um these different factions do not necessarily come together in
• 29:32
  Speaker 1: a coherent strategy, and that's why we've seen pivots and
• 29:35
  Speaker 1: reversals and moves back and forth within the Trump administration.
• 29:39
  Speaker 1: I don't I don't think this is going to be
• 29:40
  Speaker 1: the last one. So, Michael, some critics are saying that
• 29:44
  Speaker 1: what President Trump and President did this weekend was simply
• 29:46
  Speaker 1: kick the can down the road. So I guess it
• 29:48
  Speaker 1: kind of goes to the question of timing. Um, when
• 29:52
  Speaker 1: do you expect, if at all, that the US and
• 29:55
  Speaker 1: China really get together and really get a real trade deal,
• 29:59
  Speaker 1: um to other what's the timing on that? Well, I'll
• 30:02
  Speaker 1: tell you, I think the big takeaway from this meeting
• 30:05
  Speaker 1: is is the fact that you have a ceasefire, but
• 30:08
  Speaker 1: also the fact that China agreed to resume purchases of
• 30:12
  Speaker 1: US agricultural goods. I don't think that those are necessarily
• 30:16
  Speaker 1: going to be large and magnitude, but it's a clear
• 30:18
  Speaker 1: sign that President Trump is trying to reduce one of
• 30:22
  Speaker 1: the political vulnerabilities that he has faced with the standoff,
• 30:25
  Speaker 1: which is the pain that US farmers are experiencing. So
• 30:29
  Speaker 1: what I think it leads to is really the fact
• 30:31
  Speaker 1: that both sides may be comfortable with the status quo,
• 30:34
  Speaker 1: in other words, keeping current tariffs in place, avoiding the
• 30:39
  Speaker 1: risks of further escalation, but not making the kind of
• 30:42
  Speaker 1: hard political decisions to actually arrive at a trade deal.
• 30:46
  Speaker 1: So we could very well see this status quo continue
• 30:49
  Speaker 1: through the remainder of the year and through the remainder
• 30:52
  Speaker 1: of this presidential term, because as President Trump gets closer
• 30:56
  Speaker 1: to election day, I think He's going to be more
• 30:59
  Speaker 1: and more reluctant to have to defend a complicated trade
• 31:02
  Speaker 1: deal on the campaign trail. So we just may see this,
• 31:06
  Speaker 1: this current um, this current situation, this status quo continue
• 31:10
  Speaker 1: for the next year plus. Michael Harson, thank you so much.
• 31:14
  Speaker 1: Michael's practice head for China and Northeast Asia at the
• 31:17
  Speaker 1: Eurasia Group, based in New York City. Thanks for listening
• 31:22
  Speaker 1: to the Bloomberg P and L podcast. You can subscribe
• 31:24
  Speaker 1: and listen to interviews at Apple Podcasts or whatever podcast
• 31:27
  Speaker 1: platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.
• 31:31
  Speaker 1: I'm Lisa abram Woy. It's I'm on Twitter at Lisa A.
• 31:33
  Speaker 1: Bram wits one. Before the podcast, you can always catch
• 31:36
  Speaker 1: us worldwide on Bloomberg Radio.